Carrot and stick
The Indian pharma sector is likely to be adversely affected by the regime change in Afghanistan and the ever-meddling antics of China. The pharmaceuticals exports showed a growth of 4.58 per cent in the first quarter (April-June 2021) of the FY-22 at $5.78 billion as against $5.53 billion during the corresponding period the previous year. In rupee terms, the growth is 1.71 per cent. The prospects of exports in the second quarter (July-September 2021) are also estimated to be good. Drugs and pharma is also a major contributor to the year-on-year 41.5 per cent growth of India’s exports from special economic zones (SEZs). The main reason for the growth is the good performance of pharma in the April-June quarter. The CARE Ratings predicts a 11 per cent growth in the next two years, to reach over $60 billion from the current $45 billion.
But, the Talibani regime is an obstacle to smooth pharma exports to the country. The target to export medicines to Afghanistan in 2021-22 is $126.22 million. The export items consisted mainly of formulations and vaccines. In the previous two years – 2019-20 and 2020-21 - India exported $90 million and $97 million worth of pharma products respectively. Considering that the current target of $126 million is achievable.
The apprehensions of the exporters are mainly due to the doubts over the payments. Even the Federation of Indian Export Organisations (FIEO) has asked exporters to be cautious, particularly regarding payments, due to the political developments in Afghanistan. If the Taliban regime fails to build up confidence sooner, particularly related to payments, there could be a major dent in the actual exports of the year.
The issue related to the growing Chinese control over the Active Pharmaceutical Ingredients (APIs) affecting the Indian pharma industry has been discussed time and again. It was once again prominently discussed when the Indian pharma industry feared an imminent shortage of APIs imported from China when the Chinese industries downed shutters at the beginning of 2020 due to the COVID-19 outbreak .
India was prominent in API production and supplied them to the world prior to 2000. But the situation started changing thereafter with APIs and intermediates production and export moving to China. It not only increased the production capacity of APIs to very high quantities but started making them available at half of the price of India. Chinese companies could do it due to the Chinese government’s support of low-interest loans, long term moratorium on debt payment, proactive R&D support, market and export promotion incentives and low-cost electricity.
As a result, Indian companies found it difficult to compete with Chinese companies due to the price difference and started losing the export market to them. Many of them were forced to stop the production of some APIs. The Chinese companies could, thus, establish monopoly and raise rates once Indian companies stopped production of those APIs. The situation not only endangered pharma production in the country but threatened to jeopardise the sector’s export potential.
The Indian government has initiated steps to reverse the situation by launching Production Linked Incentives (PLIs) plan to promote API production in the country once again. But promoting API production once again would require many more steps and support from the government in different forms and ways.
Unfortunately, in its Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, announced in mid-August with retrospective effect from January 1, 2021, the government has excluded the pharma sector. Two prominent pharma industry associations – Indian Pharmaceutical Alliance (IPA) and Indian Drug Manufacturers’ Association (IDMA) – have pointed out that the exclusion would adversely impact the sector’s competitiveness. IPA has said that the pharma industry deserves 3 to 6 per cent benefit for APIs and formulations. The pharma sector’s exclusion from the scheme by the government is much like not offering the carrot as reward for its good export performance, and to encourage its API manufacturing prowess.